FILE PHOTO - The entry to the Home Capital Group's headquarters is seen at an office tower in the financial district of Toronto, Ontario, Canada on May 1, 2017. Picture taken using a wide angle lens.Chris Helgren/File Photo

TORONTO (Reuters) - Home Capital Group Inc (HCG.TO) is in talks with a syndicate of banks, including some of Canada's biggest lenders, to secure a loan of about C$2 billion ($1.5 billion) to replace a costly emergency credit line it agreed in April, people with knowledge of the matter told Reuters.

Royal Bank of Canada (RY.TO), Bank of Montreal (BMO.TO) and Toronto-Dominion Bank (TD.TO) are among the Canadian lenders that are expected to be part of the syndicate, the people said on condition of anonymity as the talks were confidential.

The new loan will be on much more favorable terms than the existing C$2 billion loan provided by the Healthcare of Ontario Pension Plan (HOOPP), which came with an effective interest rate of 22.5 percent on the first C$1 billion drawn down, the people said.

Shares in Home Capital rose as much as 5.9 percent following Reuters report, having been down by 5.4 percent prior to the Reuters story.

Home Capital has held talks with each of the country's biggest six banks, but not all are expected to participate, the sources said.

Credit Suisse (CSGN.S), Goldman Sachs (GS.N) and other international banks are also in discussions with Home Capital, and it is possible that a global bank may be part of the syndicate, they said.

Depositors have withdrawn 95 percent of funds from Home Capital's high interest savings accounts since March 27, when the company terminated the employment of former Chief Executive Martin Reid.

The withdrawals accelerated after April 19, when Canada's biggest securities regulator, the Ontario Securities Commission, accused Home Capital of making misleading statements to investors about its mortgage underwriting business. The company has said the accusations are without merit.

The rate of withdrawals from savings accounts have slowed since the middle of May. The company's Guaranteed Investment Certificate (GIC) deposits, a key source of funding, have also stabilized after initial declines.

That has helped strengthen the lender's hand as it targets new sources of long-term funding, sources say. Talks over the possible loan have taken place for more than two weeks, they added.

Home Capital is seeking an interest rate of 2 to 3 percent above the cost of funds though it is not clear if it will manage to secure a loan within that preferred range, the people said.

Home Capital declined to comment.

RBC, Toronto-Dominion Bank, Credit Suisse and Goldman Sachs also declined to comment. BMO did not immediately respond to requests for comment.

Home Capital, which hired RBC and BMO in April to advise on its strategic options, provides loans to borrowers, such as self-employed workers or newcomers to Canada, who may not meet the strict criteria of the country's biggest banks.

Concerns about Home Capital and overheating housing markets in Toronto and Vancouver had led to concerns about problems spreading within Canada's banking system, causing shares in the financial sector to fall to a 5-month low in May.

The terms of that loan included an interest rate on drawn funds equal to the banks' cost of funds plus 1.25 percent, a 0.75 percent commitment fee and a 0.50 percent standby charge on undrawn funds.

Over time, Home Capital hopes to land a loan closer to the terms that Equitable secured, the people said.

While other financial players have also looked at providing a loan to Home Capital, a bank syndicate is seen as the most likely outcome, the people said.

The talks are ongoing and there is no certainty that an agreement would be reached, the people said.

Home Capital last month bolstered its board with a string of high-profile appointments made in an effort to rebuild investor confidence in the company.

The new board, which includes former RBC executive Alan Hibben and former Ontario Teachers Pension Plan head Claude Lamoureux, has prioritized refinancing and replacing the emergency HOOPP loan, people familiar with the matter said.

Reporting by John Tilak and Matt Scuffham; Editing by Denny Thomas and Clive McKeef